Estate Tax Planning Overview for 2014

As we mentioned last week there are still 2013 planning opportunities that can be
accomplished in 2014. It's also a good
time to begin thinking about 2014 planning opportunities. For the first time in several years, the
transition to a new year did not coincide with uncertainty or drastic changes
in the tax law that will make long-term planning a speculative endeavor. The American Taxpayer Relief Act of 2012, "permanently"
established numerous aspects of the transfer tax system that had been in flux
for almost a decade, including the exemption amount, which is indexed for
inflation. Below are the current tax
considerations that will affect your planning in 2014 and beyond:

·
Exemption
Amount: The current exemption amount for the estate, gift, and generation-skipping
taxes is $5,340,000, up from $5,250,000 in 2013. Thus, a taxpayer may gratuitously transfer up
to $5,340,000 of property without paying transfer tax.

·
DSUE
Amount: The American Taxpayer Relief
Act of 2012 made portability a permanent aspect of the law. Thus, a spouse may use their deceased
spouse's unused exemption (DSUE) amount.
However, the DSUE amount is not indexed for inflation and remains at $5,000,000. If you have a DSUE and remarry, you may want
to plan to use it by making gifts and not risk losing it if your new spouse
should pass away before it is used, in which case the latest deceased spouse's
DSUE amount, if any, would replace the previous DSUE.

·
Threshold
for Highest Income Tax Rate for Trusts and Estates: Trusts and Estates will
be taxed at a rate of 39.6% on all income above $12,150.

·
Tax Rate
for Estate, Gift, and Generation-Skipping Tax: The tax rate is fixed at 40%.

·
Annual
Exclusion: A donor may give away $14,000 of property (assuming the gift is
a gift of a present interest) per donee without using any of the $5,340,000
exemption.

·
Planning
for Net Investment Income: 2013 was
the first year for the new 3.8%
tax on net investment income, which means taxpayers will feel the impact of
the tax for the first time in 2014 as the tax is paid. Moving forward, proper planning dictates
accounting for the new 3.8% tax.